MARKET WATCH: Crude oil prices see-saw in nervous markets

The price of crude oil continued to see-saw Sept. 15 with front-month contracts regaining some of the loss from the previous session in the New York market. The October crude contract traded at $88.01-90.15/bbl during that session, closing with a 49¢ gain at $89.40/bbl after the European Central Bank said it would backstop liquidity for European banks.

However, analysts in the Houston office of Raymond James & Associates Inc. reported, “Natural gas pulled back roughly 4% after the Energy Information Administration reported a higher-than-expected injection.” They said crude, gas, and broader market prices were down modestly in early trading.

EIA reported the injection of 85 bcf of natural gas into US underground storage in the week ended Sept. 9, more than Wall Street’s consensus for 83 bcf. That put working gas in storage above 3.1 tcf, down by 140 bcf from the year-ago level and 52 bcf below the 5-year average (OGJ Online, Sept. 15, 2011).

Brent price surges

“Brent was very strong yesterday,” said Olivier Jakob at Petromatrix in Zug, Switzerland. But he attributed most of the price increase for that crude to “a sudden surge” in early London trading that “in less than a minute” caused a $1.60/bbl jump in the price of the front-month Brent contract. “There was no significant news out during that minute, and neither the Dow Jones futures nor the euro-dollar [valuation] moved during or around that time frame,” he said. “This will remain a mysterious trade for us, and therefore we are not sure that we want to take this $1.60/bbl 1-min surge as too indicative of the world supply and demand for crude oil.”

Jakob noted, however, the surge occurred “after November Brent had regained its 200-continuous-day moving average; hence we can speculate about some computer-triggered buying. We will also note that the surge enabled Brent to print an impressive backwardation convergence (the second month moving to the value of the first month) on the day of the expiry. Such gap-closing moves are not unusual around expiry, but they don’t usually happen in less than a minute.”

There was a second surge in the Brent price later in the session, but it correlated to movements in the equity market, the valuation of the euro against the dollar, and in response to news “that central banks are making available dollar fund lines to European banks to prevent another Lehman [Bros. Holdings Inc., an investment bank forced into bankruptcy in 2008].” Jakob said, “One way or another, thanks to this big 1-minute trade, Brent managed to have an expiry price-convergence (that will be good for the technical charts).”

He said, “Global markets are very volatile, and it is a bit unfortunate that after such volatility a Swiss bank discovers a 31-year-old rogue trader in its Delta-1 division blowing up a few billion dollars a few years after a 31-year-old rogue trader in the Delta-1 division of a French bank blew up a few billion euros following some unexpected market volatility. Yesterday, Goldman Sachs [Group Inc.] announced that it was closing down its Global Alpha Fund (a quantitative fund) after sharp losses in August; the Global Alpha Fund had lost some of its limelight when it printed substantial losses in…August 2007. Apart from that, all is fine.”

Meanwhile, James Zhang at Standard New York Securities Inc., the Standard Bank Group, noted, “Oil products failed to keep up with Brent, which saw refining margins retreat from their brief recovery of the previous 2 days. Despite very poor margins for refineries running crude priced off Brent, the term structure of Brent continued to strengthen on news of further delays in Forties crude cargoes from the North Sea.”

Zhang said, “So far this week, risk aversion has taken a breather on moves from policymakers. European Union financial ministers are meeting…while the US Federal Reserve System is widely expected to implement further easing measures next week. The euro might get some short-term bounce-back amid these policy moves, which is likely to provide some support to oil.”

Still, he pointed out, “The very tight physical crude market has eroded refining margins significantly. If weak margins persist for a few more days, we expect to see a cutback in refining run rates, which in turn should help ease the tight crude market. As of the last few days, differentials for West Africa crude have come under pressure as European refiners hold back buying long-haul crude.”

Energy prices

In addition to the price rise for the October contract, the November contract for benchmark US light, sweet crudes gained 58¢ to $89.59/bbl on the New York Mercantile Exchange. On the US spot market, West Texas Intermediate at Cushing, Okla., stayed in step with the October futures contract, up 49¢ to $89.40/bbl.

Heating oil for October delivery increased 7.96¢ to $3.02/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month advanced 5.7¢ to $2.78/gal.

The October contract for natural gas, however, dropped 16.1¢ to $3.88/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., lost 1.3¢ to $3.99/MMbtu.

In London, the October IPE contract for North Sea Brent continued climbing, briefly topping $116/bbl in intraday trading before closing at $115.34/bbl, up $2.94 for the day. Gas oil for October escalated $30.25 to $952.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes gained $1.67 to $109.58/bbl.